#5
Nezavisimaya Gazeta
April 23, 2003
STEPASHIN INTRIGUES AGAINST ROSOBORONEXPORT
Arms exporters are robbing the nation
Author: Vadim Solovyov
[from WPS Monitoring Agency, www.wps.ru/e_index.html]

THE STATE AUDITING COMMISSION HAS CONDUCTED AN INSPECTION IN THE FIELD OICAL COOPERATION. IT FOUND THAT RUSSIAN LAW HAS LOOPHOLES THAT LET WEAPONS EXPORTERS PAY ABSOLUTELY NOTHING TO THE TREASURY AND ESCAPE UNPUNISHED.

The authorities of Rosoboronexport (the state-owned enterprise handling arms exports) say that sales of Russian arms abroad are growing, and annual turnover now totals $4.8 billion. This statement is backed by the data of the report of the State Auditing Commission (SAC) that has conducted an inspection in the field of military- technical cooperation. Currently, Russia's military export is 12% of the world's arms export in general and tends to expand. Reforms in the sphere of the military-industrial sector is giving its results. Meanwhile, there is an inverse proportion between the growth of the country's military deliveries abroad and the dynamics of the country's incomes over the past decade. Trusting the companies handling this process, the state has actually become unable to control its own financial flows.

According to the report, in 2001 compulsory payments from this sector to the federal budget were expected to be four billion rubles. But in reality this sum was ridiculous: only about 5% of the turnover (a little more than 200 million rubles). SAC auditors admit that it is impossible to find those guilty, since flaws in the law open wide opportunities for participants of the arms market. The Russian Property Ministry together with other agencies of federal government was to control allocations of money to the treasury. Instead of allocation of 10-50% of net profit participants reduced this sum by tens of times. One of the leaders of military-technical cooperation, Rosoboronexport, allocated only 4% of its net profit to the treasury in 2001. This means that it gave the state only 50 million rubles instead of 1.248 billion rubles.

The Russian Ship Building Agency has set the norm of 1% of its net profit for allocation to the federal budget for some of its enterprises, e.g. Admiralteiskie Verfi, and the latter has decided to pay nothing at all.

The Nizhny Tagil plant Uralvagonzavod producing tanks did not pay anything to the federal budget in 2000, although it had a good profit. Next year, its profit increased by 2.5 times, and therefore the tank makers decided to share 0.23% of its net profit with the state. The money is not allocated to the budget, and nobody knows where this money disappears.

Another example is connected with arms deliveries to China, the turnover of which is almost $1 billion a year. As a result of clearing settlements, goods were not delivered from China to Russia but were sold to the third countries, as a result of which up to 50% of sums of the contracts were transformed into incomes of agents and intermediaries. The producers themselves seemed to suffer losses. But this does not mean that the businessmen who handled these machinations did not have any further relations with the authorities of the enterprises. The Bank of Russia was in the center of the events. It gave permissions not to present customs declarations for confirmation of deliveries of goods from China to the third countries.

The state budget suffers even greater losses because of the difference between prices of weapons for the foreign and domestic markets, which sometimes amounts to 130-500%. The SAC notes that producers of military appliance products base their prices on their monopoly rights. In other words, prices of weapons for the domestic market are growing without any grounds depending on the growth of demand for these products abroad. The other aspect of the problem is that the profit received from arms export is not used for elaboration of new items of military hardware or development of the military- industrial sector in general.

Thus, the defense sector is wasting the profits that it receives from military-technical developments of the USSR without thinking about the future. The analytic report of the SAC although there are over 1,600 enterprises in Russia, only 10-20 of them are leading in the military export field. They are getting handling the basic extent of export and getting the lion's share of yield. As for their co- performers (about 900 enterprises), remain penniless. At the same time, as the SAC notes, Rosoboronexport takes about 5% of the value of the contract, although in a number of cases its share could hardly exceed 1.5%.

The report states that the system of standards in the field of military-technical cooperation "does not fully correspond to market conditions of development of the economy," to put it mildly. It is also admitted in the report that it is necessary to introduce order into this sphere: first of all, it is necessary to introduce state control over incomes. Besides, it is necessary to resolve the issue of the money enterprises exporting weapons should allocate to the treasury.

(Translated by Kirill Frolov)

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